Central Excise Applicability on Jewellary Business

-:CENTRAL EXCISE ON JEWELLARY:-

In the year 2005, the Union Govt. has introduced the Central Excise Duty @ 2% on branded Jewellery. However, there was mere collection of Rs. 16 Crores only till 2008 and therefore in the year 2009, it was withdrawn.

Again in the Union Budget 2011, the duty was re-introduced @1% on branded precious metal jewellary. With effect from 17.03.2012, it was further extended to all branded and unbranded jewellary. However, due to lots of agitation across the county, the same has been withdrawn.

Again Union Budget 2016-17 has proposed to levy Central Excise duty @ 1% on all the Jewellery articles except silver Jewellery not studded with studded with diamonds, ruby, emerald or sapphire.

This has led to widespread protests and strikes taking place in the entire country on account of the facts that procedures are cumbersome and it may not be possible to be judiciously followed by this largely un-organised sector.

Another reason might be the fact this is the industry which is working on a huge parallel in cash.

Various associations have made several representations to the Government regarding levying Excise Duty on Jewellery. In response to this, the Finance Minister has issued various press releases and circulars for ease of doing business specifically with respect to Excise Duty on Jewellery dated 04^th March 2016, 18^th March 2016 and 21^st March 2016.

Also a high level committee under the chairmanship of Dr. Ashok Lahiri has also been formed to look into the nitty gritty of Excise on Jewellery.

Indian jewellers have been on an indefinite strike since the beginning of March 2016 protesting against the Budget proposal to levy 1 per cent excise duty on non-silver jewellery. After almost strike for a period of 43 days, finally it has been called off on 13^th April 2016.

After this basic background and history, let’s understand the various provisions of the Central excise in the simplest manner.

Central Excise is applicable on manufacture of excisable goods. So, there should be manufacturing for levy of Central Excise.

(It means all the jewelers engaged only in trading activity are automatically out of purview of Central excise).

Manufacture:

Excise duty is leviable on the taxable event of manufacture. So duty is levied at the time when the process of manufacturing is completed.

The term manufacture would mean “any process whereby the goods processed would change as to name, character or use as is known in the market”.

Deemed Manufacture:

Let’s first understand the meaning of this ‘Deemed fiction’. Deeming means a situation which does not exist in reality but need to assume as if it is there in reality. 

So, Deemed Manufacture is to be understood in a manner that the said activity is not a manufacturing activity at all, however it would be considered as manufacturing activity only. 

The effect would be nothing but all the relevant provisions of the Central Excise is applicable for deemed manufacturing also.

In the context of Jewellery sector in addition to normal understanding of manufacture, the processes of affixing or embossing trade name or brand name on articles of Jewellery or on articles of goldsmiths' or silversmiths' wares of precious metal or of metal clad with precious metal is deemed to be "manufacture".

Who is liable for Central Excise – Job Worker or the Owner

As a general rule in the Central Excise, a person who is doing the manufacturing activity is liable for excise irrespective of the ownership of the goods.

If the same rule is being applied for the Jeweler business then the procedure would be very complex and cumbersome.

Therefore, for the Jeweler sector, Special provision is being specified in Rule 12AA which is produced as below:

“the person who gets the article of jewellary falling under heading 7113 or 7114 produced or manufactured on his behalf on job work basis will be liable to pay duty. “

It means that the person who is doing the job work activity is not liable for obtaining the registration, maintenance of records, filing of records, payment of duty etc. but the person who is getting the jewellary manufactured is liable for the all the things mentioned above.

Applicable Laws:

1.    Central Excise Act, 1994

2.    Central Excise Tariff Act, 1985

3.    Central Excise Rules, 2002

4.    Cenvat Credit Rules, 2004

5.    Other notifications and circulars issued from time to time.

Applicability – Basic Exemption:

Central Excise on jewellary is applicable for the manufacturers. However, each and every manufacturer is not liable for the Central Excise Registration. Govt. has exempted small manufacturers called as SSI Exemption, details of which are as below:

If the domestic value of clearance has not crossed 12 (all goods manufactured including silver Jewellery) crores in the financial year 2015-16, for the financial year 2016-17, exemption upto 6 crores of value of clearances can be availed.

The benefit for March 2016 is 50 lakhs.

However, the said SSI exemption (i.e. exemption based on value of clearance) is not available if manufacturer affixes the brand name of another person.

Payment of Duty:

Excise duty is required to be paid only at the time of removal from the factory i.e. factory to mean all the premises where the manufacturing activity is being carried out.  (To be paid in aggregate on monthly / quarterly basis)

Therefore, invoice is required to be issued and duty is required to be paid at the time of removal of goods. It is to be understood that excise duty is required to be paid irrespective of the fact whether it is for sale or not i.e. central excise has nothing to do with sales.  

Once the goods are removed on payment of duty, subsequent transactions are free from Central Excise Duty. It is unlike Sales Tax (VAT) where the duty / tax is required to be charged at each stage of sales.

Periodicity of Payment of Excise Duty

-   Duty needs to be paid on monthly basis on or before 6th of the succeeding month.

       -  In case of month of March, duty needs to be paid by 31st March.

       -  SSI units are permitted to make payment on quarterly basis.

However, for the Jewellary sector Govt. has facilitated that duty for the month of March 2016 can be paid along with the payment for the month of April 2016.

Rate of Duty:

The rate of duty on the Jewellery are as follows:

(i) 1% on transaction value [without Cenvat credit on inputs and capital goods. However credit on input services is eligible] or

(ii) 12.5% with Cenvat credit of inputs, input services and capital goods

No duty is payable if goods are exported in terms of Central Excise Rules, 2002.

Which premises are required to be registered?

Assessment under central excise is factory based.

Any premise satisfying the definition of factory is required to get registration unless specifically exempted.

If the person has been operating from more than one factory, generally separate registration certificate shall be obtained for each of such factories.

However for Jewellery sector there is special provision wherein centralized registration is permitted.

When registration is required to be obtained

Registration needs to be obtained within 30 days from the date when liability to pay duty arises.

Along with this basic explanation, following points are also required to be taken care of while dealing with Central Excise on the Jeweler Industry:

-          Difference between the House mark against brand name / trade name.

-          Various exemption notifications for goods related to jewellary manufacturing.

-          Activity of job worker – principal manufacturer

-          Rate of Duty and Cenvat Credit.

-          Exemption to Silver Jewellary subject to condition.

-          Liability of duty at the time of change in purity.

-          Duty on silver products with gold plated.

-          Amount of duty when customer has given gold in exchange of new jewellary instead of money.

-          Affixing brand of own or of others.

-          Taxability of Stock as on 29.02.2016 as the excise duty is effective w.e.f 01^st March 2016.

-          Manufacturing and selling of jewellary from the same location.

-          Export sales, sales to NRI.

-          Value at which excise duty is required to be paid.

-          Effect of wasting or making charges.

-          Duty liability when goods are received for repairs / reconditioning etc.

-          Gold supplied by the customer for making jewellary.

-          Excise duty applicability on Gold Bars etc.

-          Sale of scrap, powder generated out of manufacturing process.

-          Sales return issues or goods sent on approval basis.

-          Calculation of basic limit for clearances whether unit wise or factory wise.

-          Invoicing issues.

-          Record keeping

-          Filing of returns.

For any clarification or further information, you may contact us.